Sunday, June 9, 2019

Mexico Pays For The Wall By Becoming The Wall

Headed home aboard Air Force One after his trip to the United Kingdom and France to commemorate the 75th anniversary of D-Day, President Trump raised hopes for a deal with Mexican President Andrés Manuel López Obrador’s government to reach a deal that would avert the imposition of tariffs on all products entering the United States from Mexico.

The President announced on Twitter Friday night he had suspended plans to impose tariffs on all goods saying Mexico “has agreed to take strong measures to stem the tide of migration through Mexico and to our southern border.”

The main points of the U.S.-Mexico Joint Declaration, according to the State Department are:
  •         An enforcement “surge” by the Mexican government along its southern border [with Guatemala]
  •         New protocols allowing the United States to immediately return illegals to Mexico where they would await the processing of any asylum claim
  •         Regional efforts to help spur economic growth and development in Central America to dissuade people from trying to illegally reach the U.S.

"Mexico will take unprecedented steps to increase enforcement to curb irregular migration, to include the deployment of its National Guard throughout Mexico, giving priority to its southern border," read a joint statement issued by the State Department on Friday night.

The agreement states the Mexican government will also take "decisive action" against human smuggling organizations to stop those profiting from the trek to the U.S. border.

The failing New York Times opined, “The deal to avert tariffs President Trump announced with great fanfare on Friday night consists largely of actions that Mexico had already promised to take in prior discussions with the United States over the past several months, according to officials from both countries who are familiar with the negotiations.”

Far from being a foreign policy or international economics wonk, I’d be willing to wager the New York Times, Nancy Pelosi, Chuck Schumer and Mitch McConnell who have openly criticized the President’s decision to impose tariffs, don’t have a clue regarding the background negotiations that solidified the agreement.

Vice President Mike Pence and Secretary of State Mike Pompeo were among the Trump Administration officials involved in the talks while the President was in Europe.

While a candidate for president, Donald Trump threatened to cut off remittances to Mexico, proclaiming that such a move would pressure the Mexican government to cough up “a one-time payment of $5 to 10 billion” for his border wall.  The U.S. government has never tried to put the plan in place.

According to a published report from Mexico News Daily, “Mexicans working abroad, mainly in the United States, sent $33.48 billion to Mexico last year, an increase of 10.5% over the 2017 figure, according to the Bank of México (Banxico).

The remittances were sent in 103.9 million separate transactions, a 6% increase on the 2017 figure, and each one was on average $322 compared to $309 the year before, Banxico data shows.

Almost 98% of remittances were sent by electronic means and just over 94% came from the United States.

The total dollar amount sent to Mexico made remittances the country’s second largest foreign currency earner after auto exports, which totaled around $142 billion.  Bear in mind one U.S. dollar equals $19.62 pesos at the current rate of exchange.

The United States is the world's biggest sender of remittances worldwide, with nearly $135 billion flowing to other countries each year, according to Brion Nazzaro, group compliance director for WorldRemit Corp.

Trump could make use of anti-money laundering regulations to warn banks away from doing business with firms in Mexico.

The use of remittance as a bargaining tool would take an immediate chunk out of Mexico's economy, potentially damage U.S. companies and unintentionally rearrange how digital technology executes payments.

The remittance industry is complex, and it would be difficult to sever any one country, Nazzaro said, though Trump could make use of anti-money laundering regulations to warn banks away from doing business with firms in Mexico.

The logistical challenges involve how funds are transferred. For Western Union or MoneyGram remittances, in which someone wires money via brick and mortar stores, the trail is easier to follow and theoretically easier to shut off because there's a location on each side of the border. But lots of payments are now made through mobile apps, where the origination and destination of the account is less easy to discern.

"What could be classified as a remittance for being cut off is very hard to define," said Richard Crone, a payments consultant. Many digital P-to-P transfers aren't categorized as cross-border transfers because they can involve two U.S. accounts, with one person just happening to be in Mexico. "Does PayPal or Venmo fall in? Does Xoom?," Crone said.

That confusion could actually be good for some companies, Crone said. The impact of "squeezing" one part of the remittance balloon could be explosive for another part of the market.

"For the traditional guys in the business, I'd watch out," Crone said. MoneyGram has more than 16,000 locations in Mexico, while Western Union has more than 10,000.

Since the breakdown of talks in early May, Beijing and Washington have been exchanging sharp words as to which side is to blame for the breakdown in trade talks.

Christine Lagarde, the head of the International Monetary Fund, reiterated her call for the U.S. and China to deescalate their trade war, which she warned is the biggest risk to global economic growth.

Reuters has a good article explaining the levers China can pull to escalate its trade war against the U.S.

President Trump has vowed to discuss the festering trade war with Chinese President Xi Jinping on the sidelines of the G20 Summit in Osaka, Japan later this month.

Will he be able to pull another rabbit out of the hat?

UPDATE:  Welcome readers of Bad Blue Uncensored News.  Special thanks to Doug Ross for linking to this post.

UPDATE II:  Welcome readers of Larwyn’s Linx.  Special thanks to Doug Ross for linking to this post.

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